How green are the shoots?

The Reserve Bank of Australia (RBA) seems to expect both employment and consumer spending to continue their recent growth rates. Is this realistic???

The RBA released its August Statement on Monetary Policy. The most important aspects of the Statements are the Bank’s growth, inflation and unemployment forecasts. The forecasts are predicated on two key assumptions. Firstly that the exchange rate will remain unchanged from the current spot level throughout the forecast period (out to December 2019), and secondly that interest rates will broadly follow market pricing.

The Reserve Bank expects recently-strong employment growth to persist into 2018, with the unemployment rate expected to fall to 5.4% by the end of 2019. It also suggests that “wage growth is expected to pick up gradually over the next few years”. However other countries with full employment, including the US, are not seeing wage growth. Add to this the prospect in Australia, of a softening of the rampant housing-price increases in NSW and Victoria, consumer spending may be less likely to grow as much as the RBA is forecasting.